WisdomTree Aims for $100B in AUM: Goldman Sees it in 2014

WisdomTree Investments, Inc. (NASDAQ:WETF) reported 1Q13 EPS in line with Street’s estimate. Both gross margin (71.6%) and operating margin (27%) came in above estimates. 1Q13 flows were +$5.9bn (11% of ETF industry flow share), driven by +$3.9 bn inflows into DXJ, while 2Q is also off to a strong start with +$1.6bn inflows QTD (+$1.2 bn inflows into DXJ). WisdomTree Investments, Inc. (NASDAQ:WETF)noted that investments in the brand continue, and expects a comp rate of 24-26% in 2013 to support sector leading organic growth and new product launches.

Thank you Amit. In 2009, WisdomTree Investments, Inc. (NASDAQ:WETF) stated that we had a longer term stretch goal of becoming a top-five player in the US ETF market. I am excited to say that we recently achieved that goal. I am truly very proud of our recent accomplishments. But I am not satisfied. We need to continue to look forward, so we have established a new longer term stretch goal. We have laid the foundation to become $100 billion asset manager.

So that is our new vision, $100 billion in assets under management. I feel strongly that going from $0 billion to $25 billion in assets will prove more difficult than going from $25 billion to $100 billion, that said, we still have plenty of hard work ahead of us. But for a number of different and compelling reasons, I believe this is an achievable long term goal. I’d like to identify some of the strengths that WisdomTree Investments, Inc. (NASDAQ:WETF) possesses, which I believe make this goal possible, and even realistic.

First, we have a strength in equities and specifically the broadest global suite of dividend-based ETF’s, which are inherently mainstream, scalable strategies, and we have a performance record to back it up. Second, we have a proven ability to successfully diversify into new asset classes, from equities to currencies to fixed income and alternatives. If you look at other ETF sponsors, a few, but not many, have been able to parlay their early success beyond one or two categories and efficient marketers.

We are intelligently utilizing traditional online and new social media resources, to build a brand and to communicate messages, which resonate with financial advisers and their clients.

WisdomTree Investments, Inc. (NASDAQ:WETF) is establishing itself as a trusted brand. Fourth, we have assembled a cohesive veteran leadership team, and a deep bench of dedicated employees. We have a invested in their development, and maintain excellent employee relations. And fifth, most importantly, we have a laser focused commitment to ETF’s, which will continue to take market share, significant market share from other structures. Again, we are competing effectively with the established giants.

WisdomTree Investments, Inc. (NASDAQ:WETF) will grow with the growth of the ETF marketplace. In the last seven years, ETF’s have had inflows of $1 trillion. I expect significantly more than that, over the next seven years. In summary, Q1 was a transformational quarter for WisdomTree. In the years leading up to today, we laid the foundation to be a leader in the ETF industry. We have the infrastructure, we have the talent, and we have the vision. As we continue executing our ambitious growth plan, I am confident that we can reach our new longer-term goal of becoming a $100 billion ETF sponsor, and creating significant shareholder value in the process. Thank you for your time, attention and support.

Goldman believes this could happen in 2014, commenting:

1Q showed WisdomTree Investments, Inc. (NASDAQ:WETF)’s progress toward the guidance of 40% operating margin and $35 bn in AuM. Organic growth (32%) remains best in class and is helping drive operating leverage. Management’s newest “vision” (of reaching $100 bn in AuM) might have seemed audacious a year ago, but if flows were to continue at 1Q’s rate (under normalized performance), the firm would achieve this by 2014. Our base case assumes $48 bn in AuM by the end of 2014. Given Japan Hedged Equity’s success, questions around concentration risk are growing, but the firm is winning new client interest (from global investors) and flows to other product categories (e.g., fixed income ETF’s). We reiterate our Buy rating and view WETF as well-positioned to gain more share with its innovative product pipeline over the long term.

However, Citi is skeptical noting:

Management laid out a stretch goal of $100B in AUM driven by further share gains, industry growth, and platform scale. Management noted going from zero to $25B may prove more difficult than the climb to $100B as 7 years ago WETF launched its first ETF while the industry grew from $400B to $1.4T – during this time, WisdomTree Investments, Inc. (NASDAQ:WETF) took ~2.5% of industry inflows (including ~11% for 1Q13). Management expects the industry to produce $1.5T to $2T inflows in the next 7 years and is hopeful to garner 3% to 5% market share.